Summary be 3
© Nathalie Wittendorp
Chapter 3 : Financial statements
Equity: provided by owners of the company
Liabilities: owed to creditors
Equity Liabilities
Made available by Owners Creditors
Duration of availability Indefinite period Temporary
Fee Depends on profit Usually fixed
Character Risk bearing Risk avoiding
Costs decrease in equity
Expenditures decrease in cash Advertising costs
Costs depreciation fixed assets (decrease)
Expenditures purchase inventory in cash
Equity = assets – liabilities
Revenues increase in equity
- gross profit cash sales
Receipts increase in cash
- received cash from acc receivable
Balance sheet 31-10-2012
Fixed assets Equity capital
E.g.: Buildings E.g.: Share capital
Computers etc Reserves
Current assets Long term liabilities
E.g.: Debtors E.g.: Mortgage
Inventories Short term liabilities
Cash E.g.: Creditors
The debit side of the balance sheet (the assets) reflects the total capital requirement of the
company. This term means therefore: all the funds needed to buy the assets, whether the
company has already access to these funds or not. Funds you do not have access to yet are
called: net capital requirement.
The credit side of the balance sheet (equity and liabilities) shows the available funds.
Depreciation:
Economic life span: the number of years during which it is beneficial to operate the asset
Residual value: the value of the asset at the end of the economic life span
, Example 1 depreciation.
Purchase price of new car: €30,000
Economic life span: 10 years
Residual value: €3,000
Question: calculate the yearly depreciation.
Step 1: calculate the total depreciation, which is purchase price minus residual value:
€30,000 - €3,000 = €27,000
Step 2: divide the total depreciation by the economic life span:
€27, years = €2,700
Example 2 depreciation.
Example depreciation with fixed percentage of book value:
Purchase price of new car: €30,000
Economic life span: 5 years
Depreciation: 30% of book value per year
Question: calculate yearly depreciation
Year Book value 1/1 Depreciation Book value 31/12
1 €30,000 €9,000 €21,000
2 €21,000 €6,300 €14,700
3 €14,700 €4,410 €10,290
4 €10,290 €3,087 € 7,203
5 € 7,203 €2,160.90 € 5,042.10
This method is especially suitable for assets that loose most of their value in the early stages
of their economic life span!
Chapter 4: business plan
Financial plan consists of:
- investment plan
Balance sheet
- financing plan
- income statement
- cash flow overview
So:
Balance sheet 31-12-2012
Assets Equity and liabilities
Investment plan Financing plan
Capital requirement Sources of capital
The balance sheet only contains information at a certain moment in time!!
Income statement.
Gives information on the profit made by deducting costs (expenses) from sales (revenues).
A payment by cash is not necessarily the same as costs! E.g.: repaying a loan.
© Nathalie Wittendorp
Chapter 3 : Financial statements
Equity: provided by owners of the company
Liabilities: owed to creditors
Equity Liabilities
Made available by Owners Creditors
Duration of availability Indefinite period Temporary
Fee Depends on profit Usually fixed
Character Risk bearing Risk avoiding
Costs decrease in equity
Expenditures decrease in cash Advertising costs
Costs depreciation fixed assets (decrease)
Expenditures purchase inventory in cash
Equity = assets – liabilities
Revenues increase in equity
- gross profit cash sales
Receipts increase in cash
- received cash from acc receivable
Balance sheet 31-10-2012
Fixed assets Equity capital
E.g.: Buildings E.g.: Share capital
Computers etc Reserves
Current assets Long term liabilities
E.g.: Debtors E.g.: Mortgage
Inventories Short term liabilities
Cash E.g.: Creditors
The debit side of the balance sheet (the assets) reflects the total capital requirement of the
company. This term means therefore: all the funds needed to buy the assets, whether the
company has already access to these funds or not. Funds you do not have access to yet are
called: net capital requirement.
The credit side of the balance sheet (equity and liabilities) shows the available funds.
Depreciation:
Economic life span: the number of years during which it is beneficial to operate the asset
Residual value: the value of the asset at the end of the economic life span
, Example 1 depreciation.
Purchase price of new car: €30,000
Economic life span: 10 years
Residual value: €3,000
Question: calculate the yearly depreciation.
Step 1: calculate the total depreciation, which is purchase price minus residual value:
€30,000 - €3,000 = €27,000
Step 2: divide the total depreciation by the economic life span:
€27, years = €2,700
Example 2 depreciation.
Example depreciation with fixed percentage of book value:
Purchase price of new car: €30,000
Economic life span: 5 years
Depreciation: 30% of book value per year
Question: calculate yearly depreciation
Year Book value 1/1 Depreciation Book value 31/12
1 €30,000 €9,000 €21,000
2 €21,000 €6,300 €14,700
3 €14,700 €4,410 €10,290
4 €10,290 €3,087 € 7,203
5 € 7,203 €2,160.90 € 5,042.10
This method is especially suitable for assets that loose most of their value in the early stages
of their economic life span!
Chapter 4: business plan
Financial plan consists of:
- investment plan
Balance sheet
- financing plan
- income statement
- cash flow overview
So:
Balance sheet 31-12-2012
Assets Equity and liabilities
Investment plan Financing plan
Capital requirement Sources of capital
The balance sheet only contains information at a certain moment in time!!
Income statement.
Gives information on the profit made by deducting costs (expenses) from sales (revenues).
A payment by cash is not necessarily the same as costs! E.g.: repaying a loan.
